Zimbabwe’s treasury is mulling adjusting tax bands for workers in a bid to boost their buying power following erosion of their incomes amid escalating prices.
Economists blame the escalating prices on the activities of the parallel market where the foreign exchange rate is hovering around 1 U.S. dollar to 180 Zimbabwe dollars, while the official exchange rate is 1 U.S. dollar to 87 Zimbabwe dollars.
Many traders and retailers are opting for the parallel market exchange rate and increasing prices quietly, leaving consumers worse off.
Local media reported Wednesday that the intervention was expected to bring relief to consumers who had fallen prey to unscrupulous activities of businesses, some of which were also benefiting from the Reserve Bank of Zimbabwe’s foreign currency auction where they get foreign currency at the official rate.
The auction has so far disbursed nearly 2 billion U.S. dollars to 4,000 businesses since it started in June 2020.
Finance and Economic Development Minister Mthuli Ncube said that the government was working closely with the private sector to tackle the demand and supply dynamics to restore consumer purchasing power.
“First of all, what is driving the increase in prices has been the parallel market activity, which most of the retailers will then link their prices to. Yet we have got an auction system, which is well functioning and able to supply foreign currency quite a lot in the main. Companies have already accessed over 1 billion U.S. dollars for raw materials, equipment and so forth,” Ncube was quoted as saying.
He said the government was taking steps to make sure that the gap between the parallel market and auction rate was contained.
“In the face of prices that have risen already, one of the things that we typically do at the budget time is to consider adjusting tax bands.
“So, we are already looking at that to see how best to further cushion our consumers and hard-working citizens using the tax system in terms of salary bands,” he said.
Government workers, especially teachers, are constantly demanding wage increases, arguing that their current salaries are not enough to cushion them from poverty.
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